The Effects of RMB Internationalization on Balance of Payments in China

Abstract

This study investigates the effect of RMB Internationalization on balance of payments (BOP) by using structural vector autoregressive model (SVAR) with data from January 2010 to December 2017. Empirical evidence shows that RMB Internationalization and RMB real effective exchange rate is the Granger causality of CA via interest rate. The appreciation of RMB real effective exchange rate is the main reason for the decease of the CA surplus in recent years. To FA, RMB internationalization shock is the most important source in the decrease of FA surplus. It indicates RMB exporting through FA is increasing as the acceleration of RMB internationalization. We further recommend that it is crucial for relevant departments to monitor the relationship between RMB Internationalization and the balance of BOP.